2010 North American International Auto Show (NAIAS), Detroit, MI –
Dieter Zetsche is Daimler’s CEO and head of Mercedes-Benz’s global car division. His left arm was wrapped, and in a full sling when we met with him. The arm in a sling was explained by Zetsche, telling us he ran into a kid on the ski slopes. “I didn’t see her”, he said, his good hand going horizontal on his chest to show how tall the kid was, “she was out of my line of sight”.
That might be the only thing out of Zetsche’s line of sight as he was barraged with questions for an hour from journalists.
Some of the big news was that both Smart and Mercedes-Benz will have an electric car by 2010. He also confirmed that there would not be a Smart diesel in the U.S. and that not all Smart cars would have a Mitsubishi engine going forward. Mercedes may have seen the last family of 12-cylinder engines. And financially, mid-February will be a very important time for Daimler.
Zetsche talked about building four “next-generation, very distinct” A-class and B-Class vehicles, with the possibility of some of those cars making it to the U.S. soil. The big decision making factor would be the exchange rate, which seemed to be a consistent theme in Zetsche’s answers.
The head of the luxury brand was happy to report that Mercedes-Benz was the fastest growing premium brand last year while keeping the R & D budget the same. Zetsche is expecting “cautiously optimistic growth of 3-4 percent worldwide for 2010”. He expects China to be superior, but not the double-digit increases like they had in 2009. Zetsche expects a European decline, especially Germany, an increase in sales of 10 percent for the U.S., and a Russian recovery of almost 50 percent.
I guess Daimler wasn’t as unhappy with the Chrysler merger as I would have been, because they’re looking to partner again. Zetsche confirmed that they were talking to France’s Renault and was hoping to make an announcement by the middle of this year.
BRIC – Brazil, Russia, India, and China
Mercedes-Benz builds some C-Class and E-Class cars in China already. Soon they will start producing a new extended-wheelbase E-Class for the local market. Zetsche talked about producing more Mercedes-Benz in the U.S. for the U.S. market, including building the C-Class in Alabama.
I asked Zetsche why not just build them in China and ship them to the United States.
I posed my question as such:
1. China has cheaper labor
2. China has socialized health care for all its citizens
3. China currency is pegged to the U.S. currency
Zetsche, like some others, doesn’t think China will always keep their currency hard pegged to the dollar. He is also concerned about tariff exports, by the U.S., since sixty percent of the cars produced in the U.S. are exported to China. Zetsche didn’t exclude exporting from China into Asian regions.
BMW was the first major company in Germany to link the bonuses of its top managers to those of its assembly line workers. Will Daimler follow?
No, Nicht, nein! Okay, Zetsche didn’t say that, but you could tell! He did make sure to note that BMW did not link it to the Board, just to the managers. Even then, Zetsche didn’t believe linking the two were the best idea, “last year the workers got the tariff increase, and the managers got a decrease. I don’t think that is a formula that should stand as an example”.
Smart is on Zetsche’s radar. J.D. Power reported sales in 2008 of 24,622, and in 2009 of only 14,595. A reduction in sales, year over year, of over forty percent, could be the reason the Penske group named Saturn’s former top executive, Jill Lajdziak, president of Smart USA just three days after starting with the company.
Part of the failure, according to Zetsche, is that Smart is reversely correlated to fuel prices. While Zetsche was right in pointing out that all small brands are down year over year, by 19 percent, Smart was only eclipsed by the Scion xD with a 47 percent decline.
Not to worry, says Zetsche. Smart has a short-term and mid-term plan, and that includes a 4-seater Smart. The short-term sees an electric car and the Smart Go coming out. The mid-term another vehicle or two. The long-term will take unique ideas for that family, but diesel is not one of them at the time.
In May 2009 Daimler acquired an equity stake of nearly 10% in San Carlos, Calif. based Tesla Motors. Zetsche believes that there is a market for a “start-up and the most experienced car company in the world. There are strengths and weaknesses both have because of their character. Of course, you can combine the weaknesses if you do it wrong”
The free spirit of a start-up allows Daimler to move quickly. The first step is to use the Tesla battery in the Smart EV this year. 100 Smart electric cars have already been undergoing trials in London since 2007.
Deutsche Accumotive GmbH & Co. KG is the automotive lithium-ion battery joint venture formed in 2008 by Daimler AG and Evonik Industries AG. Production of the batteries is slated to begin next year, and those batteries will start showing up in Mercedes-Benz cars. Those batteries could also be sold to Tesla as well.
Li-Tec Battery GmbH is another joint venture between Daimler (49.9%) and Evonik (50.1%) to create cells.
Currency exposure can be hard on a company. Before the economic decline, Daimler had a $10 Billion exposure. Things are a little better because of the dollar, but they still have a $6-7 Billion exposure. Zetsche referred to some “lack of volume-related compensations” that will need to be reported by mid-February.
Expect structural changes in the next year.